Harvey Golub, the former chairman of American International Group Inc., said the bailed-out U.S. insurer should be broken up eventually because the firm’s two main businesses have “no strategic fit between them.”
“Longer-term, AIG shouldn’t exist,” Golub said in an interview airing today on Bloomberg Television’s “In the Loop with Betty Liu.” The New York-based company should be split, making independent firms of its Chartis property-casualty unit and SunAmerica Financial Group life insurer, Golub said.
“When it gets broken apart, as I think ultimately it will, both of those pieces may unlock much greater value,” Golub said in the interview.
Chief Executive Officer Robert Benmosche is reshaping AIG, once the world’s biggest insurer, to repay a $182.3 billion government rescue. He’s enticing investors to purchase the U.S. Treasury Department’s 92 percent stake by presenting the firm as a global property-casualty carrier and a U.S. seller of life insurance. That strategy probably won’t last, Golub said.
Golub, 71, a former chairman and CEO of American Express Co., was hired at AIG in 2009 to help oversee asset sales and simplify a company that leased planes, held derivatives and made home loans. He clashed with Benmosche over the divestiture of AIG’s biggest non-U.S. life-insurance unit, AIA Group Ltd., and was replaced by Steve Miller in July after 11 months as chairman.
“Bob has a different view of the role of the board than me,” Golub said. “His was that the board should be more supportive and more agreeable, and ours was that it was an independent board to exercise oversight and not just agree.”
Benmosche, 66, identified Chartis and SunAmerica as “the core of AIG’s nucleus of businesses” in a June letter to employees. AIG also owns mortgage insurer United Guaranty Corp. and International Lease Finance Corp., an aircraft-leasing company. Jonathan Hatcher, a Jefferies Group Inc. analyst in New York, said investors may benefit if the main units were split.
“No one in management would ever say this because it creates uncertainty, but you could actually argue the company is worth more broken apart,” Hatcher, a former Federal Deposit Insurance Corp. bank examiner, said in an interview. “Equity investors are going to be valuing the parts separately anyway.”
Insurance companies often focus on either property-casualty or life coverage. Prudential Financial Inc. concentrates on life insurance, after once having also offered auto, home and health coverage. Travelers Cos., the only insurer in the Dow Jones Industrial Average, was spun off from Citigroup Inc. in 2002 as a property-casualty company. Citigroup sold its Travelers-brand life insurer to MetLife Inc. in 2005.
“Chartis and SAFG are separate companies and have always been,” Mark Herr, a spokesman for AIG, said in an e-mail. Herr declined to comment on Golub’s remarks.
AIG has disclosed agreements to divest more than $50 billion in assets since its September 2008 bailout. Edward Liddy, who was chairman and CEO before Golub and Benmosche took over in August 2009, disposed of a Russian bank, a Mexican consumer-finance unit and AIG’s New York headquarters.
Liddy separated the operations of New York-based Chartis from its parent in preparation for an initial public offering, which Benmosche later halted. Chartis was given its own management and public-relations staff and a brand to distance itself from an AIG name Liddy had said was “thoroughly wounded and disgraced.”
In the fourth quarter of 2008, AIG reported the biggest quarterly loss in U.S. corporate history. That year, the firm posted almost $100 billion in net losses as bets on subprime-mortgage securities soured. The company’s derivative business was akin to a hedge fund “attached to a large and stable insurance company,” Federal Reserve Chairman Ben S. Bernanke said in 2009.
“Hedge funds were often managed with a much better sense of the risks involved,” Golub said of AIG before the bailout. The insurer had “inadequate control systems, inadequate oversight of many of the products and a mismatch of assets and liabilities that was quite substantial,” Golub said.
Chartis, headed by Kristian Moor, does business in more than 160 countries and jurisdictions, selling commercial property and workers’ compensation insurance and liability coverage for corporate directors. SunAmerica was bought by AIG in 1999.